Cash crunch imperils Davis power-crisis plan

With a combination of rate hikes and a plan to borrow billions,
California may be able to weather the unfolding financial crisis
sparked by a historic rise in energy costs, say utility executives,
key lawmakers and state financial officers.

Others are skeptical.

A state surplus of more than $8 billion has been depleted by at
least $5.2 billion in just three months after government buyers
stepped into a panicked electricity market in place of insolvent
utilities. Confidence is waning on Wall Street, where state
Treasurer Phil Angelides must peddle up to $14 billion in bonds,
the largest offering of municipal debt in U.S. history.

Meanwhile, some energy economists say that a
market-restructuring order by federal regulators unveiled last week
will fail to control prices. These experts say electricity may cost
a total of $70 billion this year -- $40 billion by August.

Now an uprising among lawmakers in Sacramento is threatening to
upset the delicate and risky plan of Gov. Gray Davis to buy power,
borrow money, rescue insolvent utilities, and prevent the state
from going broke in the process.

"I don't think the Legislature, frankly, is capable of dealing
with this issue," said state Sen. Steve Peace, D-Chula Vista,
chairman of the Senate's budget committee.

Peace was a principal supporter of the 1996 law that partly
deregulated California's electricity industry. The measure passed
unanimously in the state Legislature.

Davis rushed into the power markets in mid-January when the
state's largest utilities, Southern California Edison and Pacific
Gas & Electric, stopped paying power bills and plunged the
state into a daily risk of blackouts. San Diego Gas & Electric
Co. has continued paying its bills, but the utility likewise ceded
purchasing to the state when creditors, alarmed by a swelling debt,
stopped lending to SDG&E.

The governor reasoned that credit fears among suppliers had
inflated the cost of electricity and that the state's sterling
credit rating and purchasing clout could restrain wholesale
prices.

Since then, state negotiators say they have been assembling a
portfolio of long- and short-term contracts for electricity. Davis
has kept secret most details about the cost and scope of the
contracts, citing a need to avoid tipping his hand in talks with
power companies.

The secrecy has prevented state regulators, legislators and the
public from knowing whether he is succeeding. It also has worn thin
among lawmakers and aggravated a sense of paralysis in
Sacramento.

Of more than 200 energy bills introduced in emergency session,
only a handful have passed.

Democrats are in open rebellion, with moderates deeply skeptical
of plans to save the utilities and liberals pushing for a state
takeover of the power industry.

Conservative Republicans, openly scornful of Davis' leadership
during the crisis, have attacked key elements of the governor's
plan and may block emergency legislation to authorize
power-purchasing bonds.

Angelides said last week that the governor must provide a
detailed accounting of how much money will be collected from
electricity consumers on utility bills. Just as important is the
state's best guess about how much it will spend on power this
summer, when demand is expected to sharply drive up costs.